Wednesday, October 3, 2012

Bezos, Google & Innovation in Horse Racing

In 1998, Amazon.com founder Jeff Bezos made a trip to a
Menlo Park, California garage.In that
garage, which was a make-shift office and workshop, sat two kids who were trying
to sell a new way to search the Internet.They were seeking seed money for their venture.

Bezos almost immediately obliged. He invested $250,000 of
his own money into the concept.

Those two kids were Sergey Brin and Larry Page and the
concept they were working on was Google. This year, with Google’s stock
hovering around $600 a share, that investment is worth about $2 billion. Mr. Bezos, way back in 1998, paid 8 cents a
share for his stock.

Why did he do it? In his own words he said:

“There was no business plan, but they had a vision. It was a
customer-focused point of view.”

He didn’t know what was going to happen with search. He
didn’t know what his investment may be worth. He took a shot, because what they
were building made sense.

That seed capital created a company; one who innovates and
makes all of our lives a little more convenient, and at the same time opens
doors for more innovation.

Harness racing, like seed capital investing, is for
swashbucklers. It’s a sport that has always been for those rugged
individualists who yearn for risk, with a probability for a huge reward.We don’t ask for special treatment or to work
an eight hour day with summers off and a cushy 401k. We’re different.

We see it at every yearling sale on the planet. It happens
with the Cancilliere brothers who swing for the fences on a brother to Donato
for the price of a Massachusetts beach house.It happens with a couple of bettors who decide to take their superfecta
winnings from last week to buy that Shadow Play yearling out of a mare they
made a score on in 2006. It happens with little guys like me, who showed up at
a sale with no trainer, and saw a horse I witnessed race a couple of weeks
earlier not drawing bids at $5,000, so I put my hand up and bought him, never
seeing the horse or even knowing how I get him from the sale to a stall. It
happens with you too, almost every day.

It’s how we’re built. It’s what we do.

I had a recent discussion about the “Racing Development and
Sustainability Plan” which was structured and tabled in Ontario a few years
ago. The plan, which was created to buffer the loss of slots revenue should it
be discontinued, asked for 5% of purses to be squirreled away and used for
eight or ten previously studied and reviewed planks. These included items like
new betting concepts, betting exchanges, pick 6 tickets in corner stores, and a
few other pro-growth ideas that were new, fresh and innovative. Each idea, like Google’s, was
“customer-focused”.

I remember when it was constructed; I thought it would be a
slam dunk. Almost all of these issues were complained about by those in the
sport, and 5% of slots-fuelled purses seemed like a drop in the bucket. After
all, if you nailed a 5th place at Grand River Raceway, instead of
cashing a $250 purse check it would now be about $238. It didn’t seem like it
was an earth-shattering ask, especially since that $5000 purse could be $500 if slots were killed.

In the end it was rejected by us, the participants. It was
“too risky”, “too vague”, “there was no business plan”, “we don’t know how much
each plank would cost” and various other gripes were put forth to kill it.

Why do we have a love of risk, and hard work, and “taking a
shot” when we throw $20,000 at an unraced weanling, but we can’t give up a
paltry 5% of slot-purse money to do something planned to gain new customers and
new markets?

I wish I knew, because I think it’s one of the biggest
problems in horse racing.

When we take a shot, we innovate, and when we innovate it
opens doors. When we don’t innovate we stagnate and there are no doors to open.

I’ve often wondered of late: What if the RDSP
in Ontario passed in 2010?

If the plan passed ‘go’, one of the main items – a betting
exchange – might be up and running, with the participants of harness racing as
its owner. It might be helping with the bottom line, but it could be doing more than that.

As everyone knows, all slots revenue is being (tentatively,
there is a final report due next month) removed from Ontario racetracks in
March of next year. The government has been looking for ways to appease racing,
because the new gaming policy has pulled the rug right out from under it. Right
now there is really no conduit for them to fund racing with some sort of bridge
financing or restitution, as there are very few avenues that make sense.
Currently, what’s being batted around is a $50M severance package to be paid
over three years.

However, as a part of this new gaming policy, the government
itself has laid the foundation to pass sports betting in the Province, which
could be a huge business for them.

If a harness betting exchange was now running, with an
existing fan base patronizing it, it is probable, or at least somewhat likely,
that Ontario racing could ask the government this simple question today:

“Since you took slots away, how about allowing us to offer
sports betting on our exchange?”

To allow for some pay back, or to allow the government to
save face, a right of first refusal, or exclusivity may have been granted for
sports betting via the medium. This would be a boon for the sport in Ontario. If
others came in and tried to offer sports betting the same way, they’d likely have
to go through racing. As Betfair has proven, betting games on an exchange
brings in plenty of dollars, too. Those dollars could run into the many
millions per year, and they could be used for harness racing purses. The Ontario Sires Stakes may be funded by this
exchange each year alone, instead of everyone wondering what a sires stake
purse will even look like in three years.

The above is purely hypothetical of course, and it may have
never occurred even if the RDSP was passed. But it shows that racing could be
another example illustrating what many other businesses prove each day: If you
are innovating and trying new things, it can spawn growth and uncover new
comparative advantages and revenues; sometimes from unexpected places.

This maxim could be applied to all other ideas, like a V75
type bet in corner stores, new bets in new markets, scheduling, the list is
almost endless.

In my opinion, racing needs to look at all ideas. It
needs to fund working committees of professionals to bring these ideas to the
fore. It needs to bring our swashbuckling nature from the yearling sales floor
to the boardrooms to shake up the business and destroy the status-quo. If so, we will at the very least be trying
things that can help us learn and move the sport forward.

What we are currently doing, and our culture of saying ‘no’
to any change, is simply not working.